Uncertainty surrounding the Canada-U.S. trade dispute could prove more damaging to Canadian businesses and investment than tariffs themselves, says Calgary economist Todd Hirsch.
Hirsch, an economist, speaker and author, said the economic impact of the escalating trade conflict will depend largely on how long it continues and whether tensions increase further.
For Canadian consumers, he said the federal government's approach of imposing counter-tariffs on products where reasonable alternatives exist could help limit the impact. He pointed to American alcohol, including California wines and Kentucky bourbon, as examples of products for which consumers can find substitutes.
The greater concern for businesses is uncertainty over how the trade dispute will develop, Hirsch said. Companies can adjust to higher costs if they know what the rules will be, but uncertainty about potential further tariffs, retaliation from Washington or additional Canadian countermeasures makes planning more difficult.
That uncertainty could also affect investment in Canada, Hirsch said, particularly as Prime Minister Mark Carney prepares to host global investors at a two-day summit in Toronto.
Hirsch said Canada's smaller economic size relative to the United States adds another challenge as the two countries navigate the dispute. He said the trade tensions could make some investors question how much they want to commit to Canada while the outcome remains unclear.
Still, Hirsch said he is cautiously optimistic the dispute will be resolved over the next year. He pointed to the relative stability of the Canadian dollar as an indication that currency markets are not pricing in a prolonged economic crisis.
Hirsch said Canada should not expect a return to the free-trade environment it enjoyed for much of the past four decades. Instead, he said the country should focus on reaching a new agreement with the United States and ending the escalation in trade tensions.